Manufacturing activity in the United States grew at its fastest rate for two years in May, a closely-watched industry survey has found.

Activity in the sector increased for the fourth month in a row, lifting hopes of economic recovery in manufacturing, which has been the hardest-hit part of the US economy.

New orders also rose, a sign that US manufacturers have switched running down existing stockpiles - as they have been doing for many months - to buying in new supplies cope with expansion.

"The second quarter (of 2002) is going to be strong and we can start thinking about this spilling over into the third quarter," said Norbert Ore, chairman of the Institute of Supply Management, which compiled the survey.

Better than expected

The ISM manufacturing index rose to 55.7 in May from 53.9 in April.

The improvement was stronger than expected by analysts, who had of consensus forecast of 55.

"Sixteen industries saw improvements in new orders," said Mr Ore.

The new orders index rose to 63.1 from 59.0 in April.

Economists welcomed the findings as a sign that the world's largest economy has turned the corner, something about which there have been increasing doubts.

Looking promising

While the US economy has stopped shrinking, recent evidence - such as last week's consumer confidence data - provoked fears that the recovery lacked pace.

"So far, the evidence for a recovery in business investment has been thin, but is turning more promising," said analysts at French investment bank Societe Generale of the ISM survey.

Construction spending has also been rising, according to the latest official figures.

The US Commerce Department reported on Monday that construction spending rose 0.2% in April compared to the previous month.

Later in the week, the ISM will publish its findings for the all-important service sector, by far the biggest slice of the US economy.

On Friday, the Labour Department will issue unemployment data for May will be issued.

Despite the US recovery, unemployment is expected to keep rising for a few more months.